Is Consumption Too Smooth? Long Memory and the Deaton Paradox.
Under common ARIMA representations of income, the permanent-income hypothesis predicts that the volatility of consumption should be larger than the volatility of unanticipated shocks to income; this prediction is not supported by the data. The authors examine whether this apparent excess smoothness of consumption is the result of the ARIMA representation's implicit restrictions on low-frequency dynamics. By using a generalized long-memory stochastic representation, the authors construct confidence intervals for the long-run impulse response of income in the absence of such low-frequency restrictions. These intervals are quite wide and include regions in which excess smoothness vanishes. Copyright 1991 by MIT Press.
Year of publication: |
1991
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Authors: | Diebold, Francis X ; Rudebusch, Glenn D |
Published in: |
The Review of Economics and Statistics. - MIT Press. - Vol. 73.1991, 1, p. 1-9
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Publisher: |
MIT Press |
Saved in:
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